Marketing casteism

It's hardly surprising that 'financial inclusion' remains as much the central dogma of governance in this high noon of economic reforms and liberalisation as it was during the heyday of the so-called welfare state.

But such inclusion is meant to be accomplished today, not by compromising on commercial efficiency — aggressive deposit mobilisation, high recovery rates and cautious lending — but by actually making "business opportunity" the fulcrum of banking practices. That is in sharp contrast to the policy vision of social and development banking, which envisaged such inclusion in terms of privileging the idea of entitlements of citizens, especially members of marginal social groups, over considerations of profitability.

But the question is how equitable has the financial sector, vis-a-vis access to formal lending, been ever since the Indian banking paradigm was shifted. That is an important issue, considering that the financial sector was made to change tack not merely to reduce economic inefficiency, but to bring about greater equity as well.

A paper in the Economic and Political Weekly (August 4-10, 2007) analyses data from the 1992 and 2002 rounds of the NSSO's All India Debt and Investment Survey (AIDIS) to figure out whether or not formal lending has become relatively more accessible to Dalits in the period of liberalised (or market-determined) interest rates than it was when those rates were regulated (or state-determined). It reveals that 55.2% of the total debt of rural Dalit households in the country in 2002 was from informal sources, while formal sources accounted for only 44.8% of their loans. That is much less than the 59% of formal borrowing for rural non-Dalit households during the same period.

That said, it would be difficult to deny that the decline in formal borrowing and a concomitant rise in informal debt between the period of 'social and development' banking and the era of financial liberalisation has been a general phenomenon for all Indian rural households. Formal lending between the 1992 and 2002 rounds of ADIS declined by 6.9 percentage points for all rural households. But, clearly, Dalits have suffered much more than the non-Dalits. The decline in formal borrowing for rural Dalit households between the 1992 and 2002 was a huge 16.3 percentage points compared to only 5.6 percentage points for non-Dalit ones.

This decline in formal borrowing is a complete reversal of the trend during the 1962-92 period when the share of formal sources, particularly commercial banks, in country-wide rural household debt rose steadily: 16.9% (1962), 29.1% (1972), 55.6% (1982), 64% (1992). Also, between the 1992 and 2002 ADIS rounds the number of Dalit rural households that took at least one fresh loan from formal sources during the survey years fell by 2.9 percentage points. Not unexpectedly, there was a simultaneous rise, by 3.9 percentage points, in the number of Dalit households that went in for at least one fresh loan from informal sources. (see table.)

The decline in formal sector borrowing by rural Dalit households between 1991-92 and 2002-03 was mostly in the realm of commercial-bank credit, which dipped by 13 percentage points. And since societies, like nature abhor vacuum, professional moneylenders automatically occupied the space yielded by commercial banks. Obviously, that impacted Dalits the most. The share of borrowing from the moneylender grew by 17.2 percentage points between 1991-92 (10.4%) and 2002-03 (27.6%) for rural Dalit households. That is disturbing, considering that the non-Dalit households' share of debt from moneylenders increased only by 7.9 percentage points.

Clearly then, market-determined banking practices, contrary to neo-liberal assertions and assumptions, have not turned out to be more equitable than the social and development banking model mired in casteist hierarchies and patronage networks of the Indian public sector.